The Reserve Bank of India (RBI) wants to deregulate the interest rate on saving accounts to smoothen monetary policy transmission, as it feels is being hampered by the current fixed-rate regime. But RBI’s move is facing stiff resistance from the banks.
A 3.5 per cent a year, interest on savings accounts is the only regulated rate left in the Indian banking system and is highly controversial, given its impact on the common man. The banks fear that by making this product low – cost product can bring instability in the market.
The banks told RBI that this is not the right time for such a move. The RBI held a meeting with top bankers where their views on this sensitive issue were sought.
The chief of a bank, who attended the meeting said, “The savings bank interest rate acts as an anchor for other rates. One of the fallouts of deregulation would be that when there is a squeeze on liquidity, the rates could rise to the level of fixed deposit rates.” He added, “It will be a double whammy: there will neither be fixed deposits nor low-cost deposits.”
On Tuesday country’s top bankers, including ICICI Bank MD & CEO Chanda Kochhar, State Bank of India MD S K Bhattacharyya, HDFC Bank MD Aditya Puri and Standard Chartered Bank Regional CEO for India & South Asia Neeraj Swaroop will be meeting RBI Deputy Governor Subir Gokarn regarding this issue.
Another bank chief said, “Savings deposits are seen as a bank’s core deposits. They help us in asset-liability management. Most banks are of the view that it is too premature to deregulate the savings bank rate.”
A few months ago RBI had proposed the idea of freeing the savings bank rate. Recently Deputy Governor Usha Thorat had said, a working group will be set up to look into the possibility of deregulation. Thorat had said, “We have to examine whether the deregulation can help bring more people into the formal banking system."
Thursday, September 23, 2010
Monday, September 20, 2010
Banks likely to raise lending, deposit rates in Oct
The Reserve Bank of India for the fifth time has raised the repo and reverse repo rates by 25 basis points and 50 basis points. The impact of this hike will be visible on lending and deposit rates. But bankers indicate that the hike in lending and deposit rates will not come into effect before October as credit growth has yet to pick up.
Most probably banks will raise deposit rates first as there is a need to improve the sluggish deposit growth. Later lending rates will be raised.
Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, said deposit rates will be raised to incentivize savers.
He added, “Deposit growth is lower than the RBI's projection. If it continues to be low, it cannot support the credit growth, which will pick up in the busy season. So, the priority at this point of time has to be deposit growth.''
Mr M.D. Mallya, CMD, Bank of Baroda, said a clear message has been received from the RBI’s move that interest rates will move upward. But the lending rates will not be raised unless credit starts picking up.
He added, “It is also possible that deposit rates may go up first, and then the lending rates, subject to credit demand. A hike in rates may not happen immediately as we have just tweaked the rates.”
Mr D. L. Rawal, CMD, Dena Bank points out, in the third quarter which will begin from October, banks will raise only deposit rates as banks might face some liquidity pressure due to credit pick-up.
He added, “Once credit picks up in the third quarter, we will have to up interest rates on term deposits.”
Mr Nair said, in the festive season, the credit demand is likely to pick up so the banks might review their base rates in October, before raising the rates.
While Mr Rawal says, the banks will raise base rate in the January quarter only.
“Given that credit growth has been lacklustre in the second quarter, banks may not revise the base rate. Status quo on the base rate will encourage credit growth during the festive season. Base rate, however, will get revised in the fourth quarter as banks will take into account the deposit rate hikes effected in the previous quarters,'' Mr Rawal said.
Mr Mohan Shenoi, Group Head, Treasury, Kotak Mahindra Bank explained it has been a long period that banks have been under tight liquidity pressure which has increased borrowing cost of banks therefore at some stage banks have to transmit it to borrowers through a review of the base rate.
Most probably banks will raise deposit rates first as there is a need to improve the sluggish deposit growth. Later lending rates will be raised.
Mr M.V. Nair, Chairman and Managing Director, Union Bank of India, said deposit rates will be raised to incentivize savers.
He added, “Deposit growth is lower than the RBI's projection. If it continues to be low, it cannot support the credit growth, which will pick up in the busy season. So, the priority at this point of time has to be deposit growth.''
Mr M.D. Mallya, CMD, Bank of Baroda, said a clear message has been received from the RBI’s move that interest rates will move upward. But the lending rates will not be raised unless credit starts picking up.
He added, “It is also possible that deposit rates may go up first, and then the lending rates, subject to credit demand. A hike in rates may not happen immediately as we have just tweaked the rates.”
Mr D. L. Rawal, CMD, Dena Bank points out, in the third quarter which will begin from October, banks will raise only deposit rates as banks might face some liquidity pressure due to credit pick-up.
He added, “Once credit picks up in the third quarter, we will have to up interest rates on term deposits.”
Mr Nair said, in the festive season, the credit demand is likely to pick up so the banks might review their base rates in October, before raising the rates.
While Mr Rawal says, the banks will raise base rate in the January quarter only.
“Given that credit growth has been lacklustre in the second quarter, banks may not revise the base rate. Status quo on the base rate will encourage credit growth during the festive season. Base rate, however, will get revised in the fourth quarter as banks will take into account the deposit rate hikes effected in the previous quarters,'' Mr Rawal said.
Mr Mohan Shenoi, Group Head, Treasury, Kotak Mahindra Bank explained it has been a long period that banks have been under tight liquidity pressure which has increased borrowing cost of banks therefore at some stage banks have to transmit it to borrowers through a review of the base rate.
Friday, September 10, 2010
Karnataka Bank offering savings bank account exclusively for women
Karnataka Bank Limited (KBL) offers a new product ‘KBL Vanita’, a savings bank account exclusively for women. The rural women have fear that they cannot manage their wealth so bank aims to develop savings habit among women so that they get relieved from all such fears.
Bank offers several unique features under this saving scheme such as females of 18 years and above can open this account, two females together can open joint account, account can be opened even with 'Zero' initial deposits, no requirement of daily minimum balance, Monthly Average Balance (MAB) of Rs.1,000. Bank offer free ‘All Risk’ insurance cover for jewellery covering loss due to snatching while on travel, theft during hotel stay, burglary while at home for Rs 50,000 exclusively to the first named woman of the SB account.
Women will get free fund transfer facility. They can transfer fund of up to Rs 50,000 per month to two savings accounts in the name of children. The other facilities include Multi Branch Banking facility, MoneyPlant VISA International Debit Cards, Internet Banking, Online Payment through Debit Cards (E-Commerce), Mobile Banking (M-Commerce) available free, free SMS alert facility for all Debit and Credit transactions of Rs.5,000/- and above and fastest way of Inter Bank fund transfers through RTGS/NEFT besides, other facilities include Fast collection of cheques, Utility Bill payment, Mobile Recharge and Free monthly E-statements.
Bank will be adding more facilities for its other customers in the near future which includes Online trading, Travel Card, Gift Card, Smart Card, POS Terminal.
Soon Bank will also open new branch in Dadar, Mumbai, at present bank has 464 branches across the country.
Bank offers several unique features under this saving scheme such as females of 18 years and above can open this account, two females together can open joint account, account can be opened even with 'Zero' initial deposits, no requirement of daily minimum balance, Monthly Average Balance (MAB) of Rs.1,000. Bank offer free ‘All Risk’ insurance cover for jewellery covering loss due to snatching while on travel, theft during hotel stay, burglary while at home for Rs 50,000 exclusively to the first named woman of the SB account.
Women will get free fund transfer facility. They can transfer fund of up to Rs 50,000 per month to two savings accounts in the name of children. The other facilities include Multi Branch Banking facility, MoneyPlant VISA International Debit Cards, Internet Banking, Online Payment through Debit Cards (E-Commerce), Mobile Banking (M-Commerce) available free, free SMS alert facility for all Debit and Credit transactions of Rs.5,000/- and above and fastest way of Inter Bank fund transfers through RTGS/NEFT besides, other facilities include Fast collection of cheques, Utility Bill payment, Mobile Recharge and Free monthly E-statements.
Bank will be adding more facilities for its other customers in the near future which includes Online trading, Travel Card, Gift Card, Smart Card, POS Terminal.
Soon Bank will also open new branch in Dadar, Mumbai, at present bank has 464 branches across the country.
Thursday, September 9, 2010
RBI seriously considering on deregulation of savings bank rates
The Reserve Bank of India (RBI) is seriously working on the possibilities of deregulating savings bank (SB) interest rate- the only regulated product in the banking sector. For this RBI is considering for setting up a working group on SB deregulation to have discussion on the issues and draw conclusions.
At present savings bank interest is set at 3.5 per cent by RBI. RBI deputy governor Usha Thorat informed that deregulation of savings bank interest "an issue which is on our radar". She said, "On one hand, the low cost savings accounts provide banks with low cost funds of an enduring nature which facilitate asset-liability mismatch and help lower lending rates. On the other hand, the costs not currently recovered in handling such accounts have to be considered as well." At the FICCI-Indian Banks Association conference she said, "Given the level of interest rates on bank deposits, common persons are lured by higher interest provided by alternate channels especially in the informal markets. Totally freeing rates could, in situations where there is virtual monopoly of banking, lead to lowering rates in some areas while leading to increase in other areas - it would need to be ensured that there is no discrimination between different customers of the same bank."
She added that transparency in cost recovery can help in deregulation of SB interest rate. For this non-discriminatory across location is also important. Above all, the main consideration should be whether deregulation of savings rates will help in bringing more people into the cover of formal banking system. She said, all these issues will be taken up in detail for discussion by the working group.
The RBI is also working on issuing guidelines on banks managing large private pools of capital. Recently banks have started investing in or setting up infrastructure funds or venture capital funds or even in private equity funds.
The RBI deputy governor pointed out, where a bank is directly or indirectly involved or floats/manages large private pools of capital, in such case additional capital requirements to take care of reputation, concentration and other risks not captured in the traditional framework , is needed.
At present savings bank interest is set at 3.5 per cent by RBI. RBI deputy governor Usha Thorat informed that deregulation of savings bank interest "an issue which is on our radar". She said, "On one hand, the low cost savings accounts provide banks with low cost funds of an enduring nature which facilitate asset-liability mismatch and help lower lending rates. On the other hand, the costs not currently recovered in handling such accounts have to be considered as well." At the FICCI-Indian Banks Association conference she said, "Given the level of interest rates on bank deposits, common persons are lured by higher interest provided by alternate channels especially in the informal markets. Totally freeing rates could, in situations where there is virtual monopoly of banking, lead to lowering rates in some areas while leading to increase in other areas - it would need to be ensured that there is no discrimination between different customers of the same bank."
She added that transparency in cost recovery can help in deregulation of SB interest rate. For this non-discriminatory across location is also important. Above all, the main consideration should be whether deregulation of savings rates will help in bringing more people into the cover of formal banking system. She said, all these issues will be taken up in detail for discussion by the working group.
The RBI is also working on issuing guidelines on banks managing large private pools of capital. Recently banks have started investing in or setting up infrastructure funds or venture capital funds or even in private equity funds.
The RBI deputy governor pointed out, where a bank is directly or indirectly involved or floats/manages large private pools of capital, in such case additional capital requirements to take care of reputation, concentration and other risks not captured in the traditional framework , is needed.
Wednesday, September 8, 2010
Indian Overseas Bank wants people to open saving accounts
The Indian Overseas Bank, a public sector bank is encouraging people for opening savings bank account and gain benefit from the Finance Inclusion Scheme.
The bank said the Reserve Bank of India has urged all banks must ensure that they provide banking facilities at the doorstep of people in all villages with a population of above 2,000 by March 2011. The aim behind all this process is to open saving account for all the households, micro-credit, micro-insurance and remittance facilities to all.
The banks have been asked to adopt measures such as opening new branches, extension counters, collection centers, or appointing business correspondents or business facilitators to achieve the objectives.
In an official circular issued by the bank it has stated that no-frills account will be opened without any pre-conditions and a minimum balance will be Rs5.
Recently the Assistant General Manager of IOB, D.P. Balasubramanian launched smart card banking facility at Arittapatti. The bank informed smart card banking facility will be provided to 27 villages in Madurai district and in 21 villages in Virudhunagar district by December-end.
Using smart card people can do minimum transaction of Rs50 and the maximum of Rs 2,000. Through, this project beneficiary of National Rural Employment Generation Program, pensioners, daily wage earners, recipients of government welfare schemes will be benefited.
The bank said the Reserve Bank of India has urged all banks must ensure that they provide banking facilities at the doorstep of people in all villages with a population of above 2,000 by March 2011. The aim behind all this process is to open saving account for all the households, micro-credit, micro-insurance and remittance facilities to all.
The banks have been asked to adopt measures such as opening new branches, extension counters, collection centers, or appointing business correspondents or business facilitators to achieve the objectives.
In an official circular issued by the bank it has stated that no-frills account will be opened without any pre-conditions and a minimum balance will be Rs5.
Recently the Assistant General Manager of IOB, D.P. Balasubramanian launched smart card banking facility at Arittapatti. The bank informed smart card banking facility will be provided to 27 villages in Madurai district and in 21 villages in Virudhunagar district by December-end.
Using smart card people can do minimum transaction of Rs50 and the maximum of Rs 2,000. Through, this project beneficiary of National Rural Employment Generation Program, pensioners, daily wage earners, recipients of government welfare schemes will be benefited.
Tuesday, September 7, 2010
Aadhaar might soon be the only number needed to open bank account
In the coming days Adhaar, or a unique identification number will be enough for a person to get a new mobile connection or to open a bank account.
According to Chairman Nandan Nilekani the Unique Identification Authority of India (UIDAI), the apex agency managing the UID project, and aims to give every resident of the country a unique identity, has already started the process to make this happen.
To develop realization about the importance of having a UID, the authority is having talks with the Department of Telecommunications (DoT) and Trai to make Aadhaar numbers sufficient for getting new mobile connections.
Nilekani, while addressing income tax officers on ‘Revitalization of Public Service’ said, “We are negotiating with DoT and Trai on making the Aadhaar number sufficient for getting a mobile phone connection. Presently, a person who wants a new SIM card goes to a retail outlet and he has to do some paper works, other than submitting all necessary proofs. If he has an Aadhaar number, that entire process can be done electronically.”
He informed that the authority is also having discussions with the Reserve Bank of India (RBI), the finance ministry and Indian Bankers’ Association (IBA) to allow Aadhaar numbers as sufficient proof for their know-your-customer (KYC) procedure to open no-frills bank accounts.
He said, “If Aadhaar is sufficient to open a bank account, there is one more reason why a person should get his number.” “We think the reason why it (Aadhaar) will work is that people themselves will start seeing the benefits, and they themselves will drive the adoption.”
However the first set of UIDs was to be issued on September 1, but this has been postponed indefinitely, due to unavailability of Prime Minister Manmohan Singh. The prime minister was supposed to roll out the numbers in Chittoor district of Andhra Pradesh. Nilekani told the new date is yet to be finalized. He said, “We will be launching it in the next few weeks. We will be launching in multiple locations, and hopefully in the next few months, we will ramp up to millions of enrollments.”
According to Chairman Nandan Nilekani the Unique Identification Authority of India (UIDAI), the apex agency managing the UID project, and aims to give every resident of the country a unique identity, has already started the process to make this happen.
To develop realization about the importance of having a UID, the authority is having talks with the Department of Telecommunications (DoT) and Trai to make Aadhaar numbers sufficient for getting new mobile connections.
Nilekani, while addressing income tax officers on ‘Revitalization of Public Service’ said, “We are negotiating with DoT and Trai on making the Aadhaar number sufficient for getting a mobile phone connection. Presently, a person who wants a new SIM card goes to a retail outlet and he has to do some paper works, other than submitting all necessary proofs. If he has an Aadhaar number, that entire process can be done electronically.”
He informed that the authority is also having discussions with the Reserve Bank of India (RBI), the finance ministry and Indian Bankers’ Association (IBA) to allow Aadhaar numbers as sufficient proof for their know-your-customer (KYC) procedure to open no-frills bank accounts.
He said, “If Aadhaar is sufficient to open a bank account, there is one more reason why a person should get his number.” “We think the reason why it (Aadhaar) will work is that people themselves will start seeing the benefits, and they themselves will drive the adoption.”
However the first set of UIDs was to be issued on September 1, but this has been postponed indefinitely, due to unavailability of Prime Minister Manmohan Singh. The prime minister was supposed to roll out the numbers in Chittoor district of Andhra Pradesh. Nilekani told the new date is yet to be finalized. He said, “We will be launching it in the next few weeks. We will be launching in multiple locations, and hopefully in the next few months, we will ramp up to millions of enrollments.”
Friday, September 3, 2010
IDBI Bank waives host of service charges to raise CASA deposits
IDBI Bank a public sector lender has waived all charges on a host of services for its current account and savings bank account (CASA) including ATM interchange fee and charges related to average balance, cheque book, demand draft, electronic funds transfer, electronic clearing service, account statement and others.
The bank has waived the charges in order to increase its low-cost CASA deposit base to around 20 per cent of the total deposits in the next six months, from the current 13 per cent. Bank also aim to attract new customers and retain the existing customers through this waive scheme.
With the waiver of service-charge bank customers will be able to access ATMs of other banks any number of time without paying a fee.
The other waived off charges are new card fee, new card issue, cash service, pay order, stop payment, account closure, demand draft issue and cancellation and standing instruction.
Mr R.M. Malla, CMD, said the fee revenue loss due to waiver of service charges on CASA accounts will be earned through gains in business volumes.
Mr Malla said, “We would rather earn fees on the assets side of the balance sheet by syndicating a Rs 5,000-crore loan and earn Rs 50 crore fees than go after small charges on the liabilities side. Large corporates, mid-corporates and SMEs know us very well. We want to be known as a universal bank that caters to the financial needs of the common man.”
IDBI Bank is also planning to tap the equity market in 12-18 months as it has received capital injection of Rs 3,011 crore from the Government.
The bank has waived the charges in order to increase its low-cost CASA deposit base to around 20 per cent of the total deposits in the next six months, from the current 13 per cent. Bank also aim to attract new customers and retain the existing customers through this waive scheme.
With the waiver of service-charge bank customers will be able to access ATMs of other banks any number of time without paying a fee.
The other waived off charges are new card fee, new card issue, cash service, pay order, stop payment, account closure, demand draft issue and cancellation and standing instruction.
Mr R.M. Malla, CMD, said the fee revenue loss due to waiver of service charges on CASA accounts will be earned through gains in business volumes.
Mr Malla said, “We would rather earn fees on the assets side of the balance sheet by syndicating a Rs 5,000-crore loan and earn Rs 50 crore fees than go after small charges on the liabilities side. Large corporates, mid-corporates and SMEs know us very well. We want to be known as a universal bank that caters to the financial needs of the common man.”
IDBI Bank is also planning to tap the equity market in 12-18 months as it has received capital injection of Rs 3,011 crore from the Government.
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